Ethics are the ways of living.

Ethics are the norms for the conduct of the people in social
groupings. Ethics is available in everywhere. We follow ethics consciously or subconsciously.
Ethics varies person to person, society to society or even county to county. Business is where
ethics plays more vital role. At the most basic level, business ethics are nothing more than the
code of values and principles that govern the actions of a person, or a group of people,
regarding what is right versus what is wrong.

Business Ethics can be defined as the structured examination of how people and organizations
should behave in the world of commerce. It is the study and examination of moral and social
responsibility in relation to business practices and decision making in business. Business ethics
are often guided by law, while other times provide a basic framework that businesses may
choose to follow in order to gain public acceptance. Business ethics are implemented in order
to ensure that a certain required level of trust exists between consumers and various forms of
market participants with businesses.

Normative theory:

A brief definition of normative ethics would be a classification that attempts to derive its
standard of right and wrong from subjectively interpreted social behavior. Within normative
ethics there are several perspectives which represent different types of views. They may show
different view for the same action. These are:

1. Consequentialist Theories

2. Non-consequentialist Theories

Consequentialist theories also have two parts, which are egoism and utilitarianism. Among the
non-consequentialist theory there is Kantian theories. So it can be presented like this:
2
 Normative Theories

Consequentialist Theories Non-consequentialist Theories

Egoism Utilitarianism Kantian Theories

There are some other normative theories which are involved with business ethics. These
theories are Stockholder theory, Stakeholder theory and Social Contact theory.

Normative Theories

Stockholder theory Stakeholder theory Social Contract theory

1. Consequentialist Theories:-

Those theories that determine the moral rightness or wrongness of an action based on the
action’s consequences or results.

2. Non-consequentialist Theories:-

Those that determine the moral rightness or wrongness of an action based on the action’s intrinsic
features or character.
2
Consequential Theories:

Consequentiality Theories is also further divided in to two types-

I. Egoism: The view that morality coincides with the self-interest of an individual or an
organization. It is the ethical theory that defines self-interest as the base of morality.

Egoists: Those who determine the moral value of an action based on the principle of personal
advantage.

An action is morally right if it promotes one’s long-term interest.

An action is morally wrong if it undermines it.

 Personal egoists: Pursue their own self-interest but do not make the universal claim that all
individuals should do the same.

 Impersonal egoists: Claim that the pursuit of one’s self-interest should motivate everyone’s
behavior.

Egoists do not necessarily care only about pursuing pleasure (hedonism) or behave dishonestly
and maliciously toward others.

Egoists can assist others if doing so promotes their own advantage.

 Psychological egoism: The theory of ethical egoism is often justified on the ground that
human beings are essentially selfish.

Even acts of self-sacrifice are inherently self-regarding insofar as they are motivated by a
conscious or unconscious concern with one’s own advantage.
2
 Objections to egoism:

 The theory is not thorough: The principle of psychological egoism is false because not all
human acts as selfish by nature, and some are truly noble.
 Egoism is not a moral theory at all: Egoism misses the whole point of morality, which is to
detain our selfish desires for the sake of peaceful existence with others.
 Egoism ignores blatant wrongs: All patently wrong actions are morally neutral unless they
conflict with one’s advantage.

II. Utilitarianism: The moral theory that we should act in ways that produce the most
pleasure or happiness for the greatest number of people affected by our actions. This
theory was presented by the British philosophers Jeremy Bentham and John Stuart Mill.

The principle of utility: Actions are morally praiseworthy if they promote the greatest
human welfare, and blameworthy if they do not.

Six points concerning utilitarianism:

 In choosing between alternative courses of action, we should consider the net worth of
happiness vs. unhappiness produced by each course of action.
 We should give equal consideration to all individual preferences, and then calculate the
net worth of the various kinds of pleasures and pains.
 Anything can be morally praiseworthy in some circumstances if it promotes the greatest
balance of pleasure vs. pain for the greatest number of people.
 We should seek to maximize happiness, not only immediately, but in the long run.
 We should avoid choosing actions if their consequences are uncertain.
 We must guard against bias in our utilitarian calculations when our own interests are at
stake. So it is advisable to rely on rules of thumb.
2
Utilitarianism in an organizational context:

 Provides a clear and straightforward standard for formulating and testing policies.
 Offers an objective way for resolving conflicts of self-interest.
 Suggests a flexible, result-oriented approach to moral decision making.

Criticisms of utilitarianism:

 The practical application of the principle of utility involves considerable difficulties.

 Some actions seem to be intrinsically immoral, though performing them can maximize
happiness.
 Utilitarianism is concerned with the amount of happiness produced, not how the
amount is distributed, so the theory can run counter to principles of justice.
 Utilitarianism depends on measuring pleasure and pain, but sometimes it’s difficult to
measure pain and pleasure.

Non-consequentialist Theories:

Non-consequentialist Theories it is also called Kantian theory.

Kant’s Ethics:

Immanuel Kant, a German philosopher with a non-consequentialist approach to ethics. He said

the moral worth of an action is determined on the basis of its central features or character, not
results or consequences. He also believed in good will, that good actions proceed from right
intentions, those inspired by a sense of duty.

The categorical imperative: Morality as a system of laws similar to the laws of physics in terms
of their universal applicability. The morality of an action depends on whether the maxim (or
subjective principle) behind it can be willed as a universal law without committing a logical
contradiction.
2
Kant in an organizational context:

 The categorical imperative provides a solid standard for the formulation of rules
applicable to any business circumstances.
 Kant emphasizes the absolute value and dignity of individuals.
 Kant stresses the importance of acting on the basis of right intentions.

Criticisms of Kant’s ethics:

 Kant’s ethics is too extreme in so far as it excludes emotion from moral decision making
and makes duty dominant.
 Kant fails to distinguish between excepting oneself from a rule and qualifying a rule on
the basis of exceptions.
 It is not always clear when people are treated as ends and merely as means.

Other Normative Theories:

There are some other effective normative theories available in the business context because
consequentialist and non-consequentialist theories may play contradictory role at the time of
decision making. These theories made their place in the business ethics with time.

I. Stockholder Theory:  This is an idea proposed by economic theorist Milton

Friedman, which states that a company's only responsibility is to increase its profits.
According to Friedman a company should have no social responsibility to the public or
society because its only concern is to maximize the profits for itself and for its
shareholders.
II. Stakeholder Theory: Stakeholder is any group or individual which can affect or is
affected by an organization. For example governmental bodies, political groups, trade
associations, trade unions, communities, financiers, suppliers, employees,
and customers. Sometimes even competitors are counted as stakeholders. Stakeholder
theory suggests that the purpose of a business is to create as much value as possible for
2
 stakeholders. In order to succeed in the business over time managers have to keep the
interest of all the parties related to the organization.

III. Social Contract Theory: In this theory, it claims that a business has responsibilities to
every element of the society. The business has duty towards the stockholders,
stakeholder, and members of the society without having any relation with the business.
The business unit has also responsibility towards the nature because they are also a part
of the society. This theory argues that a business should work for the welfare of the
society because the society is giving the resources and sovereignty to exist in the
civilization.

Which normative theory is useful?

Form the above discussion of all the normative theories we can understand that no theories are
flawless. Every theory has some sort of criticism. But still from my point of view Stakeholder
theory is the best suitable for the business. Stakeholder theory argues that a business has
responsibility to all the parties related directly or indirectly with the business. This includes the
shareholders, the employees, consumers, government etc.

Egoism promotes only the self-interest of the business. So, if a business follows egoism then it
will work only to make profit by any means and by any means includes corruption. If a business
is corrupted than it has to right exist in the society.

Utilitarianism measures the pain and pleasure of any action. If the action creates happiness for
the greatest number of people than the action is ethical. But the foundation of this theory is
utility which is highly subjective and immeasurable in most of the cases. So it will give false
direction to the business. For example how a business would will measure the value of life?

Kantian theory is based on the intention of the action. If the intention of an action is good then
the action is ethical no matter what the consequences are. But for a business this is not ethical
because the intention may be good but the result can be severe.
2
Then the stockholder theory, the stockholder theory only focuses on the interest of the
shareholders of the business but the business is not only revolving around the shareholder,
employees, consumers etc. also are related. So only thinking about the benefit of the owners is
not ethical at all. Then finally the stockholder theory, the stockholder theory believes a business
have duties towards all the parties related with the business. That includes the shareholders,
employees, consumers, suppliers, governments etc. This notion believes a business should
operate for the welfare of the stakeholder. So this concept actually covers the shareholders
interest because they are among the stakeholder and at the same time it covers the other
related members of the society. So it actually covers the social contract theory as well. IBM can
be a good example in order to support this claim. In the time of recession in the American
economy, most of the company gave false information to its stakeholder to keep the share
price stable but because of giving false information their share price felt drastically and that
results many company went bankrupt but on the other hand IBM always gave accurate
information to its stakeholder. The company explained the situation to the stakeholders and it
also described the strategy to overcome this situation. The stakeholders had confidence on the
company’s explanation as the company was always honest with its stakeholders. The result was
IBM’s share price was stable and it is one of the first company overcome the economic crisis.